Perng to address inflation concern

CONSUMER PRICES:The governor said that inflation could be kept below 2 percent with a mixture of open-market operations and other financial tools

By Amy Su / Staff reporter, with CNA

Central bank Governor Perng Fai-nan (彭淮南) is expected to address the issue of inflationary pressure, as well as the pace of a cross-strait currency swap deal, at a meeting of the legislature’s Finance Committee meeting today, according to a draft of the bank’s report submitted to the legislature.

The draft, a copy of which was obtained by the Taipei Times yesterday, showed that Perng would talk to lawmakers about the central bank’s strategy to keep inflation in check, while maintaining a steady economic momentum through the use of various monetary and currency tools.

QE3 IMPACT

Perng said on Thursday last week that the US Federal Reserve’s third round of quantitative easing (QE3) could put some pressure on consumer prices in Taiwan in the near term, even though the new bond-buying measures would be weaker than the first and second rounds of quantitative easing.

However, with the bank undertaking open-market operations, coupled with its moderate easing monetary policy, headline inflation could be kept below 2 percent this year if the weather holds over the next few months, Perng said in the report.

The governor is also to tackle the issue of a cross-strait currency swap deal. Perng said in the report that Taiwan had begun preliminary talks with China on the establishment of a cross-strait currency swap mechanism, which has been put on the agenda of the next cross-strait talks.

Currency swap is an arrangement in which two parties exchange specific amounts of different currencies, and a series of interest payments on the initial cash flows are exchanged.

On Aug. 31, the bank established a cross-strait currency clearance mechanism agreement with the People’s Bank of China amid rising economic exchanges across the Taiwan Strait.

The agreement will take effect 60 days from the signing.

Perng said in the report that the currency clearance mechanism would allow flexibility in fund procurement by cross-strait enterprises, while helping the government to facilitate cross-strait banking, such as the issuance of yuan-denominated bonds and other financial products.

HOUSING PRICES

The report also touched on real-estate transactions, with the bank saying that trading volume declined in the third quarter due to a seasonal slowdown because of Ghost Month, the seventh month of the lunar calendar, a time when people hold off on purchases, as well as the start last month of a new regulation requiring real-estate brokers to report actual selling prices.

However, housing prices remained high, the report said.

Citing a housing index compiled by Cathay Real Estate Development Co (國泰建設), Perng said the prices of new housing projects rose by 5.7 percent in the second quarter from the previous quarter, and increased by 7.3 percent from the same period last year.

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